Magazine

A Hungry Rival Could Swallow Wild Oats

November 07, 2004

By Gene G. Marcial Wild Oats Markets (OATS), a natural-foods chain, is having a wild year. Its shares tumbled from 15 on Apr. 12 to 5.67 on Oct. 27. Trouble started in August when Oats, which operates 100 groceries in 24 states and British Columbia, posted measly second-quarter earnings of 1 cents a share: The forecast was 10 cents. Then on Oct. 25, Oats warned that it expects a third-quarter loss of 11 cents to 13 cents -- rather than the expected 1 cents profit. Fierce competition, particularly in California, torpedoed earnings.

With the stock plunge, the buzz on the Street is Oats is a sitting duck for the likes of Kroger (KR), the No. 1 grocer. "The stock is dirt cheap, and we are buying -- as we expect Oats will be taken out," says a hedge-fund manager, who did not want to be named. Another fund manager says Oats "will turn around -- but before then, a larger company will grab it." When the stock fell in August, four Oats insiders bought a total of 31,600 shares at an average price of 7.88 a share. Oats founder Michael Gilliland owns 8% of the stock. Its biggest shareholder, Wellington Management, with 15%, declined comment. Sonja Tuitele, investor relations manager at Oats, who bought shares in August, wouldn't comment on takeover talk.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.